Ben Bernanke (Part 1)
Is he an uneducated economic idiot? Not saying he is not educated. I say this for the simple reason that if one takes the time to read his blog, one gets the impression that he cares about no one but maybe the financial elite. In no way did his decisions assist pensioners nor the savers of the world.
Not attacking his character. Just his argument (ad hominiem)….It is a logical fallacy to attack the character and not the argument. Bernanke’s comments are self righteous and illogical. One comment….
“Except in the short run, real interest rates are determined by a wide range of economic factors, including prospects for economic growth—not by the Fed.
Pat 1 is on his contention that real interest rates are “probably” negative, is absurd.
“A similarly confused criticism often heard is that the Fed is somehow distorting financial markets and investment decisions by keeping interest rates “artificially low.” Contrary to what sometimes seems to be alleged, the Fed cannot somehow withdraw and leave interest rates to be determined by “the markets.” The Fed’s actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere.
So where should that be?”
“The best strategy for the Fed I can think of is to set rates at a level consistent with the healthy operation of the economy over the medium term, that is, at the (today, low) equilibrium rate. There is absolutely nothing artificial about that! Of course, it’s legitimate to argue about where the equilibrium rate actually is at a given time, a debate that Fed policymakers engage in at their every meeting. But that doesn’t seem to be the source of the criticism.”
To me his assertion that high interest rates are good for the economy is somewhat baffling, particularly in view of his actions whilst The Fed Chairman. Good for which part of the economy?
If his purpose was to refinance the Banks, that technically should have been allowed to fail through bad decision making processes, outright fraud and malinvestment then yes….. However he states this, then is he not admitting that his purposeful actions to lower interest rates was part of a subversive effort to destroy the U.S. economy by allowing those with access to the Federal Reserve Funds to survive yet the 99% of other businesses and the general population to suffer?
So my attack is specifically against his comments, as he held a very powerful position.
The essence of this absurd notion is that economic crises are intrinsic to the market economy (an unsubstantiated assumption), and the government must step in to correct them. This no doubt was in line with much of Henry Hazlitt’s book the New Economy who attempts to discredit Keynes.
What this means in essence, is that The Fed and Mr Bernanke do not have a theory of the business cycle. They simply brush the issue aside.
A dangerous proposition which will lead to further problems
Now a good debunking from From Pater Tenebrarum at Acting Man Blog….
“The point he was trying to make, though, is that monetary theories of the business cycle have been around since at least the 18th century, with classical economists like David Ricardo. These theories were complemented by Austrian School Economists starting with Menger and Böhm-Bawerk, and even today, research is intense in this area. Thus, more than 200 years of thinking have gone into developing these ideas.
Better to remain silent and be thought a fool than to speak out and remove all doubt.”…
Whilst Pater is libertarian (me skeptical on libertarian Hayek etal, specifically as to gold backed currencies) he debunks Bernanke’s argument entirely.
For some reason, those who argue that the originary interest rate has become negative seem to overlook that the originary interest rate is a phenomena which is not confined to credit markets. It pervades all markets in which present goods are exchanged for future goods.
For instance, the originary interest rate prevails at each stage of the economy’s time-consuming roundabout production. The originary interest rate also exists in the stock market, where investors exchange present money against a claim on future money (that is a firm’s dividend payment).
If they wanted to be consistent, the believers in a negative originary interest rate would have to call for a policy that does not only make interest rates negative in real terms in the credit market, but also in the markets for, say, stocks and housing.
However, a policy that advocates destroying firms’ values and peoples’ housing wealth wouldn’t be taken too kindly by the public at large; and those economists recommending it couldn’t expect being cheered.
The consequence of a policy of a negative real market interest rate should have become obvious by now: It is an actually perfidious policy for debasing the real value of outstanding debt; and it is a recipe for wreaking havoc on the economy.